DAV Makes The Numbers

I just received a mailing from the Disabled American Veterans, whose organization I frequently support.

DAV’s Mailing to Past Donors

The mailing piece is illustrative of the investment DAV makes to raise money for their many services provided to America’s injured war vets. If you have never received a DAV piece, you have not seen the abundance of gift stuff frequently mailed to potential as well as loyal donors: greeting card sets, bookmarks, calendars, and beautifully crafted address labels. There’s nothing “junky” about a DAV appeal letter.

46 cents postage, courtesy of DAV

What struck me about this recent letter was the inclusion of a reply envelope which was already paid with 46-cents of stamps.

Claiming austerity, most fundraisers ask you to provide your own postage. Instead, DAV pays the bill. Does it seem contradictory to you? Or does it make perfect sense? My guess is that providing the postage is a tactic to increase response, not necessarily the gift amount. In other words, if a donor normally gives $10, the prepaid return postage tactic doesn’t get more dollars per donor, but it gets more donors: those folks who won’t allow 46 cents to go to waste. And it’s unlikely many stamps get steamed off.

But here is where it gets interesting: what direct mail manager is willing to put their job on the line by suggesting they add 46 cents to the cost of every fundraising letter they send out the door. “Are you nuts, or just plain stupid??” suggests their boss, popping TUMS once a minute.

“Riskophilic” may be the proper term. Daring. Or canny. A little bit of math may reveal the truth.

You can look at DAV’s 2012 annual report which shows some numbers worth bragging about. They earned $97 million in direct mail donations at a cost of $32 million. Basically, for every dollar spent in direct mail they received 3 dollars in return. The 3:1 ratio is pretty consistent every year, and by the way, their fundraising cost is only 19% of all their expenses, which is quite acceptable.

Anyway. The letter I received had 5 Christmas cards and envelopes, a disclosure sheet, a letter, outer envelope and reply envelope. With outgoing postage, I figure the kit was worth 75 cents in the mail. $750/m. Add an additional 46 cents, and you are at $1.21 for one piece of mail. Multiply that by 100,000 and you have college tuition at Northwestern.

However: increase your cost by 60% and you need to increase revenues by 60%, to keep that 3:1 ratio. Sounds challenging? Just about miraculous is how I would define it. You don’t get swings like that. But the beauty of direct mail is that you can test it both ways, with and without the extra stamps. Clearly, the test proved positive, in a good way, so the DAV is keeping the USPS afloat while making money for its vets.

There’s more at work though. That crazy manager also has another equation in his or her head. It answers the question: how much revenue with every piece mailed? If each piece costs $1.21, then each piece must earn $3.63 in donations. 3:1, right? But only if DAV gets 100% of the people to respond. What if only 15% of the people respond? Then a $3.63 donation won’t cover the ratio. Now the gift changes, and here’s the revealing equation: $3.63 divided by 15% response. $3.63/15% = $24.20. The average donation must be $24.20.

The “ask” starts at $7.00.

Hmmm. Look at the donation form on the letter. DAV is asking for “$7… $10… $15… or more”. Whoa! What if everyone just gives $7 dollars? Well, again, this is what gets tested, and DAV is pretty confident that a $7 gift is acceptable. My hunch is that if each gift is at least $7.00, DAV just about breaks even. How’s that figured? Well, divide the piece cost by 15% response. $1.21/15% = $8.07 average gift required to break even. $7.00 is close.

Fortunately, my bet is that people give a lot more. Without having any direct knowledge of DAV’s results, I can only guess that the scenario is something like what I have described. And if it is anywhere close, DAV has some very good writers, and some very generous donors. And some very deserving vets.

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